2011-03

The smoothing hypothesis, stock returns and risk in Brazil

Income smoothing is defined as the deliberate normalization of income in order to reach a desired trend. If the smoothing causes more information to be reflected in the stock price, it is likely to improve the allocation of resources and can be a critical factor in investment decisions. This study aims to build metrics to determine the degree of smoothing in Brazilian public companies, to classify them as smoothing and non-smoothing companies and additionally to present evidence on the long-term relationship between the smoothing hypothesis and stock return and risk. Using the Economatica and ...

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